Willdan Group Inc. Q1 2023 Earnings Call

Good day, ladies and gentlemen, and welcome to the World named Group first quarter 2023 financial results Conference call.

All lines have been placed on a listen only mode.

We'll be open for your questions and comments following the presentation.

If you should require assistance throughout the conference. Please press star zero on your telephone keypad to reach a live operator at this time. It is my pleasure to turn the floor over to your host.

Sir the floor is yours.

Well, Dan groups first quarter 2023 earnings call.

Joining our call today are Tom Brisbin chairman of the board.

Executive Officer.

Jim early Chief Financial Officer, and Mike Bieber President.

The call today builds on our earnings release, we issued after market close today.

Find the earnings release and the World in Investor report that accompanies today's call and the press release and stock information section.

Investor Relations website.

I will say on dot com.

Management will review prepared remarks, and then well.

On the call up to your questions.

Statements made in the course of today's conference call, including answers to your questions, which are not purely historical are forward looking statements within the meaning of the private Securities Litigation Reform Act of 90 95.

The forward looking statements involve certain risks and uncertainties and it's important to note that the company's future results could differ materially from those in any such forward looking statements.

Cause that could cause actual results to differ materially and other risk factors are listed from time to time in the company's SEC reports, including but not limited to the annual report on Form 10-K filed for the year ended December 32022.

Company cautions investors not to investors not to place undue reliance on the forward looking statements made during the course of this conference call well, then disclaims any obligation and does not undertake to update or revise any forward looking statements made today.

In addition to GAAP results. We'll then also provide non-GAAP financial measures that we believe enhance investors' ability to analyze the business trends.

Our non-GAAP measures.

Adjusted EBITDA and adjusted EPS.

I will now turn the call over to Congress.

Well that is chairman and CEO .

Thanks, Al and good afternoon, everyone.

Two months ago, we communicated that we had to overcome the significant headwind.

We are impacting our business and began our trend back to a growth company or.

Our first quarter performance continues that trend, enabling us to deliver our best first quarter ever.

The continuing improvement in our financial performance and our strong backlog gives us confidence we can deliver the full year 2023 outlook, let me share with you some additional detail.

Cities are important customer for us and we have a six year long relationship in California.

Our city service model provides us a unique opportunity.

Energy and infrastructure capabilities and the municipalities.

We expect this strength and demand for engineering and financial services. The city to continue we do not see a slowdown due to inflation or a potential recession in this area.

We expect inflation reduction yet.

And the infrastructure investment and jobs Act to help cities fund this important new projects over the next several years. In addition, we see are struggling with their difficulty in hiring qualified engineers. This helps our outsourcing model.

Our solar business enrolled two new contracts for our distribution planning software during the quarter.

<unk> contract is for one of the nations largest energy Investor owned utilities, We also signed new software contract with one of our largest municipal all electric service companies.

There are approximately 170 investor on utilities and 3000 municipals.

Software business pipeline looks good and strategically we see opportunities in both markets to support distribution, great planning and forecasting and Boston near and midterm.

It's being driven by electric vehicles and electrification.

Hello is growing out of the grid, our software solution helps them plan and optimize the solution.

Our New York Energy business is executing on their backlog.

Work in the dormitory authority of the State of New York, New York City Housing Authority in New York Power Authority.

<unk> this route for 50% organic growth in 2023.

They are electrifying nature housing as a way to decarbonize grid and provide better levy for the resin.

Our performance Engineering group is entering the strongest two quarters as it starts to work on five New California base performance Engineering contracts. These wins were based on collateral collaboration with our cities Engineering group.

Our new professional service contract with San Diego gas and electric is performing well, there's one year customer service program to support small businesses say why they are recovering from COVID-19.

California IOU contract.

Are performing well.

A positive contributor in the quarter, we expected performance and contribution to continue throughout the year.

E trade continues to grow at 20% plus they provide high end energy to sell into the entire country.

Helping develop the framework for the clean energy transition.

And we'll continue to be well that's like into the future I worry most for the continued growth of the world.

Last month, we released our 2022 sustainability report at the forefront of all that sustainability efforts is our commitment to achieve carbon neutrality by next year.

In closing 2023 is off to a solid start with strong first quarter performance and the strength of our backlog. We are on track to deliver the full year 2020 outlook we provided.

Two months ago.

And thank our employees customers and stockholders for their support I will now turn the call over to Ken who will provide additional details on our financial results.

Thanks, Tom and good afternoon, everyone. Much has been accomplished from a financial perspective over the past few quarters. The amendment to our FTE commercial contracts in Q4, and the completion of our new software licenses in Q1 ongoing strength from our municipal services segment and the continued.

<unk> solid performance through the rest of our business.

Have enabled us to generate more than $22 million in cash flow from operations over the past few quarters. Our Q1 gross revenue was up 11, 7% and net revenue was up 23% over the same period a year ago.

All of that growth was organic.

Gross profit was 32% higher gross margin improved to 42% in 2023, driven by the same forces increasing.

G&A expenses were essentially flat versus the same period, a year ago and increased employee incentive compensation on the strong.

It was offset by reduced stock compensation expense.

Interest expense increased to one 7 million to $2 5 million in Q1 of 2023 due to the changing interest rate environment.

Our income tax rate was the seasonally high 44, 7% this quarter compared to a credit of 38, 8% in the first quarter of 2022, mainly due to the timing of certain discrete tax adjustments for the quarter net income was 932000 or <unk>.

<unk> per share versus a loss of $3 8 million or a loss of <unk> 30 per share in Q1, a year ago.

Adjusted EBITDA in Q1 of this year with $99 million.

The $2 3 million in 2022, and adjusted earnings per share was <unk> 32 cents this year versus 72 per share a year ago.

It's a significant improvement in operating performance, which has enabled us to reduce our leverage ratio to three point out and bring our credit facilities back in compliance with our original loan covenant, removing the borrowing limitations under our $50 million line of credit.

The net result is a reduction in our annual interest rate spread by 2% saving about $2 million on an annual basis.

Our balance sheet also reflects the improved earnings and higher cash flow our cash balance at the end of March 2023 was $17 9 million up $9 1 million from the end of 2022.

We are on track to deliver our full year outlook, we provided in March and continued to Delever our balance sheet.

Moreover, we are encouraged by several factors, including significant improvement will there's financial and our strong backlog of new contracts and new projects ongoing in proposal activities.

Look forward to providing an update to our 2023 outlook with our next call.

Operator, we're now prepared to answer your questions.

Thank you.

Question.

Well, we'd like to make a comment.

Comment Please press star one on your telephone keypad at this time.

I would like to.

Thanks, you comment or a question. Please press star one on your telephone keypad at this time.

And we have our first question from Chip Moore.

Please go ahead good.

Good evening good.

Good evening, Hey, Thanks for taking the question.

Congrats on the very strong quarter, I guess I wanted to start with.

And your last comment there on updating guidance next Paul I guess, just given that strong Q1 beat and in what seems like good momentum across most of the business just.

Just curious how to think about the existing guide sort of high end.

Certainly seems very achievable, if not beating it but what are I guess, what are some of the risks to the guidance and visibility you need.

Take that.

Sure.

Well.

There's always the question of timing of some of the startups as some of the problem some of the projects that we have.

We're not seeing a lot of downside risk from supply chain issues.

Bye bye.

But there are the startup timing issues I think that.

Were always involved.

Exactly what the mix of revenue in any individual quarter that has a little bit of impact on that.

On the risk return profile that we have there.

We remain confident in the way that we kind of forecasted the year laid it out at the beginning of the year and.

So our expectations are.

While we're optimistic.

Well know a lot more by the time, we get to the next call.

Understood I appreciate that.

And if I could ask on the software win for IAA or software wins I should say.

In particular, and maybe just give us a sense of scale.

Scale and scope there I'm, assuming that contributed to the margins in the quarter.

Thank you.

The largest one of the larger I O U's out there is that across their territory is there.

Opportunity to extend that contract and is there any sort of recurring service component.

Yes, Jeff this is Mike.

This is the first contract where we do have a companion service license.

Additionally, the software license so for each providing significant services as discussed or over the next five years.

We're looking to provide that on an ongoing basis.

As usual, we don't break out individual software licenses, but.

It really puts US ahead of our plan for Q1, we started off the year great.

And we will look at guidance again at the end of Q2, but right now we feel pretty good we're ahead of plan.

Got it okay and.

Maybe just one more from me I'll, let others hop on.

Momentum you're seeing on the <unk>.

Syed on engineering and financial services as well.

Net revenue is up 18% it sounds like you're seeing an acceleration there you announced that.

That electrification.

In <unk> County.

Maybe if you could expand on that opportunity it sounds like the.

Incrementally more bullish on the synergies there, but love to hear what you're saying.

Of the five projects that I mentioned and collaboration.

Our engineering legacy business was instrumental in making the introductions.

Our performance contracts are youll refrigerated electrification. So we are seeing that synergy really taking place was that your question chip.

Yeah, and then also on sort of pipe.

Backlog and outlook there.

Obviously, a lot of funding to come from from Irene elsewhere, but.

How those discussions are going and when that spigot could kick in.

I think I already said, the second and third quarter on the performance contracting will be very strong and they're doing work for cities in California, as well as across the country.

So.

We see that growing.

Okay.

We're very optimistic about.

Yes.

Sure.

Great.

I appreciate the color and congrats again I'll hop back in queue. Thanks.

Our next question is from Marc Riddick.

Please go ahead.

Hey, good evening.

So I was wondering if there was any anything that you were seeing as far as the.

The timing of customer activity or any any tangible.

Delays or are changing order patterns that are that either would be tied to just general economic conditions, but also maybe some of the some of the banking headlines that we've seen if theres anything that that would be connected to what youre seeing currently.

Yes.

Referred to in the script.

We have not seen anything.

Change due to inflation or a lot of talk about a recession.

If you wanted to very specific when we talk to a city managers financial.

Financial people.

They're doing this time, which we think is different than <unk> seven <unk> eight is it's not such a big surprise, we've been talking about recession for so long.

They are preparing for.

They are not spending there.

They are buckling down and as I commented in the script they are not higher.

So we provide outsourcing April two cities in a big way.

So they are going to more of an outsourced model. So.

We haven't felt any effect yet.

And if there is one.

Unless it's a massive one I hope so.

We said, we're going to be okay.

Much.

Much better than what we saw was that in a way.

And we're now for more a little more detail I think Mike you are 25% of our net revenue.

And <unk> is one.

100% right now.

And on the 75% that's in the.

Let's call it energy space.

That can always based on all of that.

So we are hoping for.

Similar.

Okay.

That help you at all.

That's helpful and then I guess the other part.

The thought is always thinking about sort of maybe some of the labor availability and in some areas.

The of the economy, that's begun to have a little greater.

Bel ability for better or worse I suppose I was wondering if you could talk a little bit about maybe where your your your staffing needs are and the.

The availability of <unk>.

More of a labor has changed much over the last few months.

Finally at each other right now I'm trying to get like an [laughter].

[laughter].

Seth availability I didn't mean to create.

Alright.

So mark Labor is still tight in the U S. As we mentioned last quarter, we did most of our hiring coming into this year. So we have hired most of the physicians the remaining physicians will hire over the course of this year as we continue to grow.

Those would particularly literally be in our front end services or.

Energy consulting business with E. Three.

Performance engineering, particularly electrical engineers, we need that resource we've done most of the hiring in the energy efficiency business.

Mhm.

Okay. That's helpful.

Appreciate it thank you.

Okay.

Thank you and once again, ladies and gentlemen, if you do have a question or comment. Please press star one on your telephone keypad.

And so at any time. Your question has been answered you can remove yourself from the queue pressing one.

One moment as we poll for questions.

And there are no new questions so far.

Okay. Thank you very much to everyone listening on the call today, and we will see you in about 90 days.

So thanks again for being patient.

It was a good quarter and we expect a good year.

Sure.

This concludes today's conference. We thank you for your participation you may disconnect. Your lines at this time and have a great day.

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